Tuesday, March 19, 2024
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More than half of consumers are willing to buy an electric vehicle or an appliance with a decarbonization certificate. Almost nine out of ten would pay an additional premium if the manufacturer can prove that its value chain does not leave a carbon footprint.
Ignacio J. Domingo
While the Great Pandemic drastically disrupted value chains and geopolitical tension pushed them into a process of permanent resilience, progress in combating climate change is forcing companies to eliminate any trace of pollution originating from their production sites. Climate neutrality depends on it. Because raw material suppliers, manufacturing sites and Original Equipment Manufacturers (OEMs) "are responsible for 60% of the planet's greenhouse gases," explains Kris Timmermans, head of value chain operations at Accenture's Global Management Committee, for whom the implementation of sustainable mechanisms in their production models "boosts their dynamism and stimulates their capacity for active resilience."
On the other side of their business ecosystems, consumers also seem to have become more inclined to spend on goods and services without a carbon footprint. In an atmosphere where, according to The Economist, consumption has become a hermit, incorporating new habits that explain its surprising impact on economies—especially in high-income areas—that are resisting recession and giving preference to selective purchases, credit payments, long-lasting products over perishable and consequently dispensable services or goods, and, of course, a penchant for green labels.
A study by Boston Consulting Group (BCG) corroborates the latter aspect: the predisposition of consumers to opt for sustainable catalogs and even to pay an extra premium for official and globally accepted certifications that these goods have been manufactured without carbon emissions. Nicole Voigt, managing director and partner of the consulting firm, and her team of experts demonstrated this using a dual survey: the first with a sample of 1,750 people in the process of buying a car—either electric or biofuels—in China, France, Poland, the UK, Japan, Germany and the USA, and the second among 774 customers looking to buy a household appliance, in this case a washing machine. Both products are the target of a large part of the spending desires around the world.
The opinion poll sought to find out whether or not consumers are willing to pay a green premium—in other words, to pay more for a guarantee that their goods have been manufactured without a carbon footprint. And the result is encouraging. Fifty-seven percent of respondents stated that they are willing to consider "definitely or with high probability" the verification of a production sustainability seal in their future purchases of a vehicle or household appliance. Furthermore, almost nine out of ten (88%) would be willing to pay at least an additional 0.4% surcharge on the price for their manufacturer's decarbonization efforts.
While the sustainable mindset, which is similar among Western partners in the EU and the US, is higher among potential car customers in China, Japan and Poland or washing machine customers in the Asian giant, there are also urban, generational, income, and gender differences. Millennials and Gen Z and city dwellers are more likely to shell out the premium for sustainable production guarantees than older residents in suburbs or rural areas, according to the findings on Western Europeans, Americans, and Japanese.
In Poland and China, however, it is even more pronounced. In both countries, 52% of millennials (aged 28–34) living in cities (77% in the Eastern European market and 95% in the Asian market) are the most likely to finance the green label. Chinese consumers are the most closely aligned with sustainability concerns, according to BCG, with middle- and upper-income men more committed to spending the extra money.
Although, in reality, rather than gender or income issues, they correspond to specific consumer segments because the most green-conscious consumers are eco-curious customers, pragmatic shoppers. and seekers of comfort and quality of life. The first group, BCG noted, value the efficiency of production sources and advocate recycling and renewable energy sources. The second group is concerned with value for money and profitability, and sustainable vehicles and washing machines depreciate less. And the third group prioritizes brand appeal, and the sustainable label is in vogue.
However, there are also country-level trends. Half of eco-curious Germans would pay 3% more (about 1,600 euros) for a vehicle with no carbon footprint—the lowest share among the markets surveyed—compared with 9% for the Chinese and Japanese, about 4,100 euros and 4,500 euros, respectively, which are dependent the final price. This social stratum is mostly in favor of electric or hybrid cars, while the other two place even more faith in biofuels.
All this is part of a general trend where the three consumer profiles provide a clear picture: 47% of them would pay the green premium for a vehicle—up to 3% in the case of Americans, the lowest level, and up to 9%, the highest, among the Chinese. When buying a decarbonized washing machine, this percentage climbs to 55%, with Germans willing to pay 6% more, the least generous with this premium, and the Chinese at the other extreme, with a collective intention to add 12% to their initial outlay.
Timmermans stresses the other unavoidable factor in this sustainable consumer journey: the green vision of companies. He corroborates, based on another Accenture report, that companies' sustainability strategies involve their executives, with their responsibilities associated with value chains that must eliminate their carbon footprints.
"There is light at the end of the tunnel, a halo of hope," because almost half of the CEOs are taking up the challenge. A third say they are actively reducing their Scope 3 emissions, which are more difficult to quantify than emissions in scope 1 (direct) and 2 (indirect) and are caused by the business activity, demographic pressures, and the services and industrial equipment needed to supply a city. Half say that their company is moving towards circular business models.
A similar story was told at the World Economic Forum (WEF) at the Davos summit in January. "Most companies could multiply their sustainability impacts through decarbonization processes in their value chains." This is particularly true for companies in sectors that are highly dependent on consumption and, more specifically, eight sectors that emit 50% of CO2: food, construction, fashion, fast-moving consumer goods, electronics, automotive, transportation, and professional services. The restructuring of these sectors would gain in efficiency and circularity with only a marginal impact on their final costs as they would have to activate available technological instruments and affordable lines of financing.
In short, business strategies to revalue their products and services and ensure the sustainability of their value chains are supported by citizens, who say they are willing to adapt their consumer spending to prices that reflect the efforts of manufacturers, suppliers, and intermediaries to deliver goods and services without carbon footprints. Of course, they are not willing to pay for the entire green bill, but they do show a willingness to pay for part of the transition to net-zero emissions, which should encourage the productive sectors to set out on the road to energy neutrality.
Ignacio Domingo has spent most of his 30 years of professional practice analyzing geopolitical, international economic and capital market issues in Expansión and collaborating with media channels such as El Confidencial, Capital, Estrategias de Inversión and El Diario.es, among others. He received the award as a first runner-up for the Citigroup Award, which recognizes the best annual economic reporting.
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